The US non-conforming crisis has forced the White House to react with tax breaks offered to home owners who are struggling to meet repayments. Government-backed refinancing has also been introduced, with the President setting out a limited programme of federal aid.
Although only a small proportion of poorer households are eligible, the action has been met with some positivity. However, there is criticism of the administration ‘rewarding bad behaviour’.
President Bush said: “The government has got a role to play, but it is limited. It is not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.”
This followed a comment by the chairman of the Fed, Ben Bernanke, that a cut in interest rates may be necessary to protect the US economy as stock markets surged in both London and New York. However Bernanke claimed that ‘it is not the responsibility of the Fed to protect lenders and investors from the consequences of their financial decisions’.
Louise Cuming, head of mortgages at moneysupermarket.com, said: “It is unfortunate that we are being hit by the backlash as advice here is much more robust. Still 4 per cent of UK borrowers are in arrears so 96 per cent are paying fine, and advice processes are working well with careful underwriting.
“The fallout will hit UK borrowers hard with a short-term rise in arrears, but confidence in the market will return.”
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